John McDonnell says renationalisations won’t add to the public debt, and some academics agree with him.
Photograph: Tim P. Whitby/Getty Images

Labour has outlined plans to bring the rail, water and energy supply industries back into public ownership. Royal Mail will also be nationalised as part of a manifesto pledge to reverse some of the high-profile privatisations pushed through by the Conservatives in the 1980s and 90s, and by the more recent coalition government. Shadow chancellor John McDonnell brushed aside concerns that it would be a step back to an era when nationalised industries were characterised by lack of investment, labour disputes and poor services. Nonetheless, questions remain.

How much will it cost?

Buying National Grid, which runs the UK’s energy transmission network, would cost £38bn based on its current capitalisation, though that includes its US business, which the government presumably wouldn’t want. The six power networks and four gas networks – separately owned entities that look after local power and gas – are valued at £60bn, but Labour has stressed any nationalisation programme for energy would be a gradual process.

Nationalising 32 water companies in England and Wales will also be costly. The water regulator, Ofwat, puts the capital value of the industry at £69bn.

For Royal Mail, Labour says it would acquire enough shares to restore majority public control. Buying 50.1% of it would mean an investment of just over £2.15bn at current share price.

The rail industry will cost nothing, because track and station owner Network Rail is already state-owned. That leaves the train franchises, which the state just could take over when franchises lapse.

Will it increase the public debt?

Economists Jonathan Portes of King’s College London and Tony Yates of Birmingham University jumped to McDonnell’s defence when he said the policy wouldn’t add to Britain’s debt burden. Unlike the nationalisations of failing industries in the 1930s and 1940s, Railtrack in 2002 and the banks in 2008, Labour’s targets are thriving. It may seem like an accounting sleight of hand, but the cost of privatisation would be balanced by the value of the asset acquired.

Any practical difficulties?

Regional water franchises were sold, not leased, so Labour would need to buy out those shareholders. It would also need money to buy Royal Mail shares. Cash can be borrowed at ultra cheap rates on international money markets, though, and the government will then take the profit usually passed to shareholders.

McDonnell says he would make shareholders trade shares for bonds: the government would still need to pay bondholders interest, but the profit margin would be shared with consumers. Imagine a privately owned water company has a 10% profit margin. If Whitehall lawyers managed to negotiate 5% annual interest on these bonds, consumers could get the remaining 5%, which the government would distribute through lower bills.

Plans to renationalise energy transmission companies are less clear. The manifesto says Labour will “regain control of energy supply networks through the alteration of operator licence conditions, and transition to a publicly owned, decentralised energy system.”

This is likely to be a more organic process, whereby the government funds municipal networks that will take over the National Grid on an area-by-area basis. In addition, the government will support a new breed of local supplier to compete with the big six retailers of power that include Centrica, E.ON and EDF. This part is uncosted for now.

Any long-term gains for us?

Labour says it will “cut household bills by £220 a year”. But the process will be slow as the changes to a complex industry are negotiated. It could take control of the National Grid at huge cost. It could change the firm’s investment policies and promote renewable energy, but this would increase bills, not cut them. A move to municipal ownership of power lines and local generation could reduce bills, but only after much investment.

Buying water companies and Royal Mail could realise a more immediate gain, but this could be eroded by demands from the government to increase investment. Critics also say a Labour government would come under pressure to pay higher wages. Keeping post office delivery centres from closure, which Labour highlights in its manifesto, is a union demand that few voters would consider important.

Will it benefit the taxpayer?

It depends how well the government runs nationalised businesses. Their value could fall if they become loss-making. Academics have found private operators no more effective or efficient than public owners. Money is usually the key. The trains are safer and popular with buckets of public investment.

Labour says Royal Mail has paid out £640m in dividends in three years while closing 10% of delivery offices. As an owner of Royal Mail, the government did much the same: the Treasury took all the surpluses and invested very little in new machinery or processes. And to compete with Amazon an increase in investment would be vital.